"Credit is going to be a continuing, if not increasing, problem," says president and chief executive officer Thomas F. August in a recent earnings conference call. "It's an issue all landlords will have to address."

Prentiss Properties Trust began addressing Dade Behring's financial woes in July, when they learned from the company it was soon filing a pre-packaged bankruptcy petition that would trade $1.4 billion in debt for the company's common stock, August reports. If Prentiss Properties declined to renegotiate the lease on the 137,000-sf building, Dade Behring could have rejected the lease in bankruptcy proceedings, August says. "We had little leverage," he adds.

The result was a new 10-year lease at $3 per sf lease than the previous rate, which according to a company supplemental report was $29.47 per sf, with Dade Behring shedding 30,000 sf. Instead of getting $4.07 million a year at 1717 Deerfield Rd., Prentiss Properties Trust will see $2.83 million a year from its tenant.

Tenants shedding space is going on across the country, Prentiss Properties Trust officials note. While the REIT has retained 65% of its tenants with expiring leases, they are only renewing on 40% of the previous space, August notes.

However, Dade Behring has emerged from bankruptcy, and its stock is now traded over the counter.

"The good news is we got a nice credit," August says. "The bad news is, we paid a high price to get it."

Instant Insights /

REIT Pays 'High Price' of Tenant's Bankruptcy

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